Evergreen Advisors, LLC is pleased to announce that George Davis will be joining the firm as Executive Vice President, Strategic Advisory. Strategic Advisory. George is well-known for his successes in investing, building and managing biotech, IT, and software companies, often from the start-up stage. He recently completed a 2-year tenure as Executive Director and CEO of Maryland’s Technology Development Corporation (TEDCO), the State’s Technology Transfer, Innovation Development and Venture Investing Platform. With over 30 years of management experience, having served in various C-level positions, including President and CEO of publicly traded companies, George offers a broad range of experience and business acumen. [Read more…]
With the venture capital market hopping with big money deals and his company planning a (partial) move to the South Baltimore’s glitzy Port Covington project, Rick Kohr, the founding member and CEO of Columbia-based Evergreen Advisors, is at a juncture in his career. That means Kohr, who has more than 30 years’ experience in advising early stage growth and middle-market companies has plenty to talk about.
What are the trends in venture capital (VC) today?
First off, we’re seeing a very robust market. Going back to 2014, it was very strong in terms of investment in the U.S., where we’d gone from $71 billion of invested capital to $132 billion in 2018; this year, the first quarter was $32.6 billion in the U.S., which was down 36 percent from last year…..
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While the appraisal of an Employee Stock Option Plan (ESOP) is very similar to other types of valuations of a private company, there are some complexities that require valuation expertise in ESOPs. The Employee Retirement Income Security Act of 1974 (ERISA) requires Trustees to obtain appraisals by independent valuation professionals to support ESOP transactions. An appraisal is needed when the ESOP initially acquires shares from the company’s owners and each year thereafter that the corporation makes contributions to the plan.
When the Trustees of an ESOP face issues related to appraiser objectivity and independence, qualifications, and knowledge of ESOP special considerations, they often look to Evergreen Advisors for valuation expertise. The following are the main reasons we are contacted for a change:
- Independence and Conflicts
The number one reason ESOP Trustees engage the experts at Evergreen is when an ESOP appraiser is conflicted by providing services to either the company, board, or other related parties to the company. This includes accounting firms that have separate valuation practices. ESOP Trustees are opting to mitigate this risk by engaging truly independent valuation firms like Evergreen to perform critical compliance-related analyses.
ESOP transactions are regulated by the Department of Labor (DOL), and typically have significant tax and legal implications. Therefore, an ESOP valuation must be able to withstand scrutiny and potential challenges from multiple parties including the DOL, the IRS, and the ESOP plan participants. With the additional scrutiny being given to ESOPS by DOL auditors, it is imperative that the ESOP valuation appraiser also have the requisite valuation training, experience, and credentials such as the Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV), or Certified Valuation Analyst (CVA). [Read more…]
You would have to be completely unplugged from the media if you have not seen multiple headlines over the past few years profiling mergers and acquisition activity at record levels and record valuations. According to the Institute for Mergers, Acquisitions and Alliances, United States M&A volume as measured by transaction value was over $1.9 Trillion in 2018 up from almost $1.8 Trillion in 2017. Year to date through May, 2019 there was approximately $800 Billion in transaction value. 2018 Middle-market M&A volume in the U.S. hit $427.9 Billion up from $372.7 Billion in 2017.
Valuations are experiencing record levels as well. U.S. private equity backed buyouts were executed at an average EBITDA multiple of 11.6x in 2018, down a bit from the 11.9x multiple in 2017, but still above the average post-financial crisis multiple of 9.9x (2010 – 2016).
- Private capital dry powder is approximately $2 Trillion;
- Private debt funds (non-bank, private lenders) have over $300 Billion of dry powder; and,
- Corporate America is holding almost $1.7 Trillion of cash.
Working with middle-market companies, our investment banking teams at Evergreen Advisors Capital are consistently interfacing with private equity and strategic buyers and our activity levels and outcomes are reinforcing the statistics and anecdotal evidence – It is a great time to be a seller. Across several industries such as business services, software, healthcare, cyber, government contractors, and diversified industrials, we are seeing strong, consistent interest in our sell-side mandates from both financial and strategic buyers. That being said, it is not a one size fits all market. To ensure success and best manage time and resources, entrepreneurs considering liquidity alternatives need to access and evaluate the appropriate audiences for their particular fact pattern.
Scale continues to be a factor in generating interest from strategic buyers. During more than one sell-side engagement, we have seen potential strategic buyers show initial interest in a target only to back away when a higher priority (i.e. larger target) opportunity became available. Even though we found other buyers, the message has been clear that corporate America’s human resources are constrained when it comes to M&A causing transaction timelines to stretch a bit. We have been successful in guiding middle-market companies that may be sub-scale to larger strategic buyers, in generating interest from smaller strategic buyers that are backed by private equity. In almost all of these PE-backed strategic transactions, we encountered a counterparty that was able to act quickly and decisively, generating a great outcome for our client. [Read more…]
2019 continues to be another robust year for cyber M&A transactions. The first half of 2019, M&A deal volume is up 31% over the first half of 2018.¹ We all remember last’s years IPO of locally based Tenable Software and the activity continues with this month’s debut of software maker, Crowdstrike Holdings, a cloud-native endpoint protection platform built to stop breaches, going public with a valuation of $6.6 billion, raising $612 million in their debut.
Locally, BlueRidge AI, Fulton MD just received a $1.9 investment from Datatribe. BlueRidge is integrating Internet of Things (IoT), machine learning (ML), and predictive analytics to help the industrial and manufacturing sector target electric motor failure modes, providing manufacturers with the ability to schedule prescriptive maintenance and minimize downtime. That being said, in order to ensure that its products and services are misra compliant, a number of software development guidelines must be adhered to. Above all, in case you were not aware, the MISRA standard provides a comprehensive set of guidelines to protect against security vulnerabilities and program failures. Furthermore, Datatribe announced this year it raised $50 million for fund two to invest in an additional 12 companies. Inner Loop Capital announced in June that they raised $2.6 million to invest in early-stage cybersecurity and enterprise technology companies in the region. The fund aims to make approximately eight seed-stage investments over eighteen months, with typical initial investments of $300-400k.
Evergreen Capital is working on several projects in this space and seeing some key trends including:
Security Threats continue to grow, along with the volume, variety, velocity, and data. The Digital Expansion includes IOT and Critical Infrastructure. [Read more…]
Kathy Warden was born and grew up in the small town of Smithsburg, Maryland. She graduated from James Madison University in 1992 and in the early part of her career she worked for GE, Verizon, and General Dynamics. She joined Northrop Grumman in 2008 as Vice President and General Manager of the Cybersecurity division. In 2016 Kathy became President of the Mission Systems Test Sector, COO of the Corporation in 2017, and this past January 1st was named Chief Executive Officer.
Recently I met with Kathy at Northrup Grumman’s headquarters in Falls Church, Virginia. We discussed a wide range of topics, but what stood out as I reflected on our conversation, was her thoughtfulness and passion for people and mission. Enjoy!
Chairman, Evergreen Advisors
Interview with Kathy Warden
Small Town Girl
MG: You went to school in Smithsburg, a town of 3,000. It keeps being named the safest city in Maryland. What’s the secret?
KW: There’s only 3,000 people, and they all know one another.
MG: From a small town to CEO of Northrop Grumman: Is there some part of you that was shaped by that experience in terms of character and values? Have you ever thought about that?
KW: I have actually thought about that quite a bit. I’m still just that small town girl. I think values and character are very much shaped in those early stages of one’s life. Being in an environment that was so small, where people knew one another and trusted each other and understood their character based on what they did, not just what they said – that shapes you as you become older. You realize how important character is to building relationships with people.
MG: In high school, were you part of clubs and organizations?
KW: Interestingly, when I was in high school, I was involved, but also looking at what was next. I finished high school by going to the local junior college to get some college credits in my senior year. I interned in a law firm, trying to get exposed to new things. That really helped to shape my thinking about what I was going to study in college. Then I abandoned all of that when I got to James Madison and switched majors. I decided to go in a completely different direction, switching from pre-law into computer systems.
MG: Tell me about your family.
KW: I come from a very humble background, with my parents working traditional blue collar jobs. They taught me the value of setting goals and working hard to achieve them. [Read more…]
Evergreen Advisors Capital, a middle market Investment Bank is pleased to announce that it has been named a 2019 Moxie Award finalist. The Moxie Award program honors the accomplishments and achievements of growing businesses, nonprofits, and associations in the DC metro community. Organizations are recognized for having demonstrated boldness and innovation as an integral part of their growth strategy.
“I want to congratulate our team for being nominated as a Finalist for the 2019 Moxie Award enabling us to be recognized among the boldest and most innovative organizations in the D.C. metro community” Rick Kohr, Chief Executive Officer said. Our team has a proven track record in providing innovative and strategic solutions to meet our clients’ evolving business needs and implementing winning strategies for our clients.”
Finalists were recently announced by Sarah Cody, the 2019 Moxie Award executive chairwoman. “We received an unprecedented number of entries,” Cody said. “We look forward to revealing the winners at the 2019 Moxie Award celebration on Nov. 5, 2019, at The Ritz-Carlton in Tysons Corner.” [Read more…]
In this Entrepreneur Spotlight, we are highlighting Attila Security located in Fulton, MD with Datatribe.
Attila Security is the leader in portable IP security. Their award-winning GoSilent technology was originally developed at NSA designed to protect government and enterprises from advanced cyber attacks, zero-day threats, and data theft. Built for the cloud world where traditional network perimeters have disappeared, GoSilent helps global enterprises protect their most precious asset— DATA —wherever it resides. By providing visibility, control and threat defense across physical, virtual, and cloud applications, Attila protects connected devices from the tidal wave of cyber activity estimated to cost the global economy more than $400 billion annually. Their people, products, and partners are committed to protecting the nation state.
For this feature, we interviewed Gregg Smith, a cyber industry veteran who previously led several cybersecurity companies including OptioLabs and Silent Circle on how they got their name and how they have been so successful at having their technology adopted. [Read more…]
Although ESOPs are complex, highly regulated, and expensive to administrate, they can offer owners a tax-advantaged way to obtain liquidity. The following are characteristics that may indicate your company is a good candidate for an ESOP:
- Consistent Earnings and Cash Flow – When a company sells to an ESOP, owners will typically finance the transaction with debt due to the unique tax advantages associated with ESOP debt. However, annual debt service can be a significant drain on an ESOP company’s annual cash flow. Therefore, to ensure the long-term feasibility and success of the ESOP, it is critical that the company not only be able to meet its debt obligations, but also have enough cash flow to fund future capital expenditures and working capital. Companies with high-profit margins and consistent revenue streams generally make good ESOP companies.
- Adequate Size and Employee Base – Statutory requirements limit the amount of stock benefits that can be concentrated among shareholders. Additionally, annual ESOP contributions are limited based on participants salary. Therefore, a company with a large employee base is a better candidate for an ESOP than a company with a small employee base. A good mix of “seasoned” and junior level employees is also helpful to smooth out the Company’s repurchase obligation as participants retire.
- Strong Entrepreneurial Culture – Companies that have a strong entrepreneurial culture are usually good ESOP candidates. Employees that understand the connection between their jobs, the company’s profit, and ultimate value will be incentivized to increase that value as they become owners.
- Desire for Partial Sale – One advantage of selling to an ESOP versus sale to a third party is the option of a partial sale. In most cases, strategic buyers and private equity firms are only interested in buying a controlling interest. This is because these types of buyers want to influence the business operations to enhance their return on investment. In the case of an ESOP, partial sales of at least 30% are allowed. Owners may prefer a partial sale initially to retain control, continue legacy operations, and keep leverage levels reasonable. The remaining interest can be sold gradually, over time depending on the cash flow of the business. This structure offers a level of flexibility many owners are attracted to.
Evergreen Advisors, a middle market Investment Bank and Corporate Advisory Firm, with offices in both Columbia, MD and McLean, VA, is pleased to announce the addition of Todd Nelson, Director Business Valuation.
“We are delighted to welcome Todd to Evergreen Advisors. Todd has a unique blend of business valuation, consulting and litigation experience and is highly respected as an expert within the business valuation community. Todd’s background fits very well with Evergreen’s platform as we look to expand and grow the valuation practice in the Washington/Northern Virginia area.” stated Pat Lowry, Managing Director of Evergreen’s Business Valuation Practice. [Read more…]